China has asked the European Union to justify its incoming carbon border tax at the World Trade Organization (WTO). The move suggests the Asian country may challenge the new legislation at Geneva’s trade courts.
The WTO envoy from Beijing proposed on March 15 to use the Committee on Trade and Environment to conduct multilateral talks on “environmental measures that have given rise to controversies”, starting with the carbon border adjustment mechanism (CBAM) proposed by the EU. China insists the upcoming carbon tax is not compliant with global trading rules.
In a proposal filed to the Geneva body’s secretariat, the tax opponents said that if the mechanism is accepted, the European Union will have to defend its legality, environmental objectives, impact on trade, impact on developing WTO member countries, and consistency with WTO rules. Yet, it would not constitute a formal dispute.
The proposal did not talk about the EU directly, but at a committee meeting on March 15, Beijing said CBAM was the initial target, a trade source reported.
According to the document, “environmental objectives should be consistent with the fundamental principles and basic rules of the WTO, strike a balance between environmental considerations and trade considerations, and do not constitute protectionist measures or green trade barriers.”
CBAM, which is scheduled to go into force this October, is an important element of the EU’s goal to reach climate neutrality by mid-century.
Once implemented, the CO2 border tax will require companies wanting to import goods into the EU to buy certificates that show the emissions generated by those goods. The CO2 credits will reflect the difference between CO2 prices in the origin countries and the CO2 prices of the EU emissions trading system (ETS). The goal of the measure is to prevent the relocation of manufacturing to countries with weaker climate laws.
At first, the EU carbon tax will cover emissions from the iron, steel, cement, aluminum, fertilizer, and electricity sectors.
China has opposed the measure for years. The world’s biggest producer of raw industrial elements, the country would be the most heavily penalized by the law, according to a 2021 research by Tsinghua University.